What is wrongful dismissal?

Why you need to honour notice periods—even if that means using pay in lieu of notice

First published on Thursday, Jun 04, 2020

Last updated on Wednesday, Jun 26, 2024

What is wrongful dismissal?

Wrongful dismissal involves you (an employer) breaching an employee’s contract.

It occurs when you dismiss someone:

  • Without notice.
  • Without giving them the full notice in their contract.
  • Or not giving them their statutory notice.

To make a wrongful dismissal claim, an employee must prove that you dismissed them in a way that breached their contract.

They must also prove that they suffered a loss because of your breach. For example, loss of pay.

They must make their claim within three months (minus one day) of their dismissal.

You can’t fire your staff without notice unless you find them guilty of gross misconduct or a serious breach of their contract. This is summary dismissal.

What’s the difference between wrongful dismissal and unfair dismissal?

For a dismissal to be wrongful, you must breach the staff contract.

For it to be unfair, you would fire them for a reason that’s not one of the fair reasons for dismissal in Section 98 of the Employment Rights Act 1996, or without following a fair procedure.

To claim for unfair dismissal, they would need two years’ service with your business unless they’re claiming for automatically unfair dismissal.

A wrongful dismissal claim requires no amount of service.

Wrongful dismissal during probation period

Wrongful dismissal definitions focus mainly on notice periods.

This includes the notice periods of staff who are on their probation.

Common notice periods in someone’s contract are:

  • Less than one week: staff who've been working for you for less than one month.
  • One week: staff who've been working for you for between one month and six months.
  • One month: staff who've passed their probation.

Remember, staff don’t need to have been working for a set period to make a claim.

Pay in lieu of notice (PILON)

If you don’t want someone to work their notice, you can pay them ‘in lieu’ of notice (PILON).

PILON is a useful alternative to serving notice that lets you reduce the risk of keeping your employee involved in work operations.

Without a contractual PILON clause, employees can still accept payment in lieu of notice. But, they wouldn’t receive any further compensation if they later made a wrongful dismissal claim.

Wrongful dismissal payout

If an employment tribunal finds you in breach of contract, you must pay damages for the net loss that your employee suffered.

The limit is £25,000.

Damages that an employee can recover also include any benefits they would’ve earned during the notice period. Bonuses, pensions, and private healthcare are the most obvious.

If you found this article helpful, you should also read about constructive dismissal.

Lucy Cobb

Employment Law Specialist

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